"This comes at a crucial moment when the old growth model based on energy and use of spare capacity has been exhausted and moving to a new growth model based on diversification requires new investment, including foreign technology," the IMF said.
Antonio Spilimbergo, the IMF's mission chief to Russia, underlined the message to journalists on the side lines of the St Petersburg conference, saying Moscow should not retreat.
"It's very important to be more integrated with the rest of the world, both financially and economically," he said. "Now, the recent events are problematic ... because it would be a big pity if this takes a toll on investment in the longer term."
Firms are not spending on tangible assets, such as building and infrastructure, and capital expenditure has been falling month after month, down 2.6 in April.
Read MoreUkraine ends ceasefire, calls for 'attack'
Instead, money is flowing out of the country. The IMF estimates that capital outflows could reach $100 billion this year, in line with the Russian government's estimates.
The Fund said fiscal budget reserves, of around 0.3 percent of GDP last year, would cushion the overall budget balance from Crimea-related spending on infrastructure.
The Russian government revised down its budget surplus forecast on Tuesday to 0.4 percent.
"Under the baseline scenario, general government debt is expected to remain sustainable and low," the IMF said.
Russia's sovereign debt to GDP ratio stood at around 12 percent last year, while many developed countries, such as Italy or Japan, carry a burden of 100 percent or more.
The IMF urged the finance ministry, however, to remain prudent in spending and when assuming the base oil price for budgetary purposes.
The energy sector accounts for one-fifth of Russia's gross domestic product, two-thirds of exports and around one-third of general government revenues.
"Additional fiscal measures, if needed, should be temporary and of high quality and be set in a medium-term framework that ensures sustainability," the
IMF said. "But additional fiscal consolidation in outer years is needed to rebuild buffers."
Read MorePutin slams sanctions, looks East to ex-Soviet lands
The finance ministry manages two sovereign funds, the Reserve Fund and the National Wealth Fund, which stand at $87 billion each. The Reserve Fund, which is to cover budget shortcomings, is meant to reach ultimately 7 percent of GDP.
Last year, it stood at 4.3 percent.
"With the Reserve Fund below its target, the authorities risk pro-cyclical fiscal adjustments in the event of large and lasting oil price decline," the IMF said.
"This risk is heightened given the already high level of oil prices. Staff argued for more prudent oil-price assumption during the budget process to generate more savings."
The IMF says the central bank should raise rates to try to curb inflation, which it expects at 6.5 percent by the end of the year, above the central bank's estimate of around 6 percent.
The central bank's general target is 4.5 percent.
"Higher rates would also help reduce capital outflows that have emerged amid geopolitical tensions, global liquidity tightening and rate hikes by major emerging markets' central banks," it added.